Venture Capital: Cold Fusion has winning new flavor –non-tech

Seattle venture capitalists and angel investors got awfully
excited about an ice pop yesterday.

That’s right, flavored ice on a stick.

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

Cold Fusion Foods Inc. — maker of a fat-free frozen energy bar — won top honors
at the third annual Early Stage Investment Forum yesterday by beating out eight
other start-up companies.

It was the first time that a non-high-tech company took home the top prize. For
many of the 200 or so in attendance, Cold Fusion’s win was a sign of the
changing times in Seattle’s venture capital and angel investor community.

No longer is high tech the ticket to success.

Collin Madden, president of Cold Fusion, wowed investors with a 10-minute
presentation by stressing three things: a unique-tasting product, growing revenue
and a forecast of profitability early next year.

It also didn’t hurt that Madden, whose family owns part of the Vitamilk Cos. dairy
operations, tempted investors with free samples of the frozen treat right before the
lunch-hour voting.

But Madden said the win had much more to do with his company’s strengths and
the changing investment mood in Seattle.

"There have been so many failures in the Internet space, half the VCs in town
have gotten scorchingly burned," said Madden, whose 4-year-old company has
six employees, $370,000 in sales and operations in Seattle and Culver City, Calif.
"I think we are an alternative."

Judging by the flurry of activity around Cold Fusion’s booth yesterday afternoon,
investors appeared to be looking for something new.

"They have a very interesting product," said Mark Solon, managing partner at
Boise, Idaho-based Highway 12 Ventures. "It is a long process, but it is intriguing,
and they have a lot of things going their way."

Solon said he was planning to follow up with the company.

In the past two years, the Early Stage Investment Forum — an event that matches
entrepreneurs with venture capitalists and angel investors — was dominated by
Internet, software and wireless technology companies. Usually these companies
had big ideas but little substance.

But that’s not the case this year.

In addition to Cold Fusion, presenters at the forum — which continues today at the
Sheraton Seattle Hotel & Towers — include a boat lift manufacturer, a hearing aid
maker and an energy company looking to produce electricity from ocean waves.

Of the 173 business plans submitted to the forum, only 9 percent were in the
Internet field. About 30 percent of the submissions came from software
companies or computer technology firms. Nearly a quarter were in the
biotechnology, pharmaceutical or medical care arena. Twelve percent were in the
consumer sector.

Vijay Vashee, a former Microsoft Corp. executive turned angel investor who sat on
the event’s steering committee this year, said diversity is a good thing. That’s
because there is money to be made in various kinds of start-ups.

"It doesn’t have to be high tech necessarily," said Vashee, who last month
invested in a Seattle fresh-fish distributor.

What matters to Vashee, and other investors like him, is the entrepreneurial
mind-set. In his view, that was alive and well yesterday.

"From a start-up standpoint, I think it is the best time to invest because more
people are willing to take second mortgages on their homes, more people are
willing to work for zero salary," he said. "There is fire in the entrepreneur’s belly
and they are willing to sacrifice. I am more willing to make a bet on that."

Gaylord Kellogg, an angel investor and investment professional at Frazier
Technology Ventures in Seattle, said he is seeing more interest in non-tech deals
at investor events.

"People are looking to diversify," Kellogg said.

Yesterday, Kellogg’s interest was piqued by Cold Fusion and Alumina Micro, a
Bellingham manufacturer of micro electromechanical systems.

Blake Park, who works with angel investors in California, said the renewed
interest in the biotech, manufacturing and consumer product sectors is pretty
simple.

"Part of it is portfolio diversification," said Park, who runs the marketing consulting
firm NimbleStrategies. "But it is also that many investors have been burned in the
past (by tech)."

Even though yesterday’s event highlighted some Pacific Northwest companies
that would not be classified as high tech, some investors made it clear that
software is still king when it comes to private investments. In fact, Byron McCann
of Seattle’s Ascent Partners said now is the best time to invest in the battered
tech sector.

Still, for entrepreneurs who sat on the sidelines during the dot-com boom, the
movement away from Internet mania is a welcome change.

"For the previous two years, if you weren’t something dot-com you had trouble
raising money," said John Hrobsky, president of Snoqualmie-based Advanced
Cochlear Systems. "Unfortunately, those companies raised the expectation bar in
terms of promised returns to investors that couldn’t be fulfilled."

Now, Hrobsky said that even though the financing market remains tight "the luster
is back on the biotech and medical device sector."

And that’s good news for the Wisconsin native, whose company is developing a
new hearing device.

"I feel good about our chances," he said.

P-I reporter John Cook can be reached at 206-448-8075 or
[email protected]. For more information on Seattle-area start-ups or
venture capital firms, visit http://www.seattlepi.com/venture/

http://seattlepi.nwsource.com/venture/64419_vc29.shtml